European banks break ranks over cryptocurrencies

The numbers of initial coin offerings (ICOs) have ballooned since bitcoin's success. Keystone

A handful of smaller European banks are breaking ranks with the rest of the sector by giving investors access to cryptocurrencies and advising on initial coin offerings, despite an intensifying effort by regulators to clamp down on the area.

Vontobel and Falcon Bank, the Swiss private banks, are among the lenders that are agreeing to handle cryptocurrency-based investments on behalf of their clients. Germany’s Fidor Bank and Liechtenstein’s Bank Frick are also providing such services. 

“There are risks involved but there are also really big opportunities,” Edi Wögerer, chief executive of Bank Frick, told the Financial Times. “We know what to do from a security perspective so this is a big opportunity for banks like us.” He said bigger banks were “scared” of cryptocurrencies “because they don’t understand them, they feel threatened”. 

Oliver Bussmann, president of the Crypto Valley Association in Switzerland’s canton of Zug near Zurich, said that because the largest lenders were sitting on the sidelines and refusing to handle cryptocurrencies it was opening the door to smaller banks and specialist firms. “More and more bankers are coming in,” he told the FT. 

Bank Frick advises companies on initial coin offerings and vets their investors before they can buy tokens in return for cryptocurrencies such as bitcoin and ether. Mr Wögerer said it had “huge demand” for this service and had advised on about 10 ICOs. “We are very selective.” 

The bank, which can passport into the EU because Liechtenstein is a member of the European Economic Area, also gives investors access to crypto-exchanges, sells its own crypto-tracker fund and provides custody services — keeping the codes for virtual coins on a physical token locked in its vault. 

Most banks steer clear of cryptocurrencies, worried about money laundering or terrorism finance because of the inherent anonymity of the assets. 

Jamie Dimon, chief executive of JPMorgan Chase, has said anyone caught trading bitcoin at the US bank would be fired. Many British and US banks have blocked cryptocurrency purchases on credit cards, while some UK lenders are refusing mortgages to clients with deposits funded by selling cryptocurrencies. 

Since the value of all cryptocurrencies halved in the past month to $400bn, regulators have been warning about the dangers of the new asset class to infiltrate the mainstream financial system. “Resolute ringfencing measures might be needed,” Yves Mersch, executive board member of the European Central Bank, warned last week. 

Yet Mr Wögerer is unperturbed. “We hear these international statements,” he said, comparing the current furore to the early days of the internet, which many viewed as a threat. “If it gets regulated, and it will get regulated, we will already comply with it,” he said. 

Executives at UBS and Credit Suisse said they would not handle crypto-assets even if clients asked them to. Benoît Legrand, chief innovation officer at ING, the biggest Dutch bank, said: “By definition an ICO has decided to go outside the financial system. I’m really amazed by what is happening there. We are certainly not getting involved in that.” 

This reticence is opening the door to smaller rivals, such as Vontobel, which offers a bitcoin tracker and a product that lets investors bet against the main cryptocurrency. Falcon offers investors access to bitcoin and other cryptocurrencies, as well as accepting cash from the sale of such assets. Fidor provides a euro bank account to Kraken, the US cryptocurrency exchange, and provides its German clients with access to the platform. 

Mr Bussmann, the former chief information officer at UBS, said the smaller banks were bringing much-needed rigour to the process of checking clients are not breaching money-laundering or sanction rules.

Copyright The Financial Times Limited 2018